poor credit rating impact on mortgage

rvd48

Hi folks, i currently have a fair chunk of debt that i need to clear asap.

on credit cards i have:
cc 1: £600
cc 2: £500
cc 3: £1,000
cc 4: £1,000

overdrafts:
no 1: £200 (small charge per day)
no 2: £2,000 (Graduate overdraft - no charge)

i can probably clear cc 1 and 2 (£600 + £500) plus £200 overdraft once i get paid this month and live like a tight bum until the next pay day lol.
The remaining 4k might take 3 months if i scrimp and dont spend much!
the problem is i want to get a mortgage by Dec15 / January 16 and with this shady debt history, i also have used payday loans and missed credit card payments in years gone by.
Will this seriously impact my chances of getting a mortgage even though i will be debt free and have possibly 10k in savings by late this year?

Dobbibill

How long ago did you use payday loans?

How many missed CC payments and again how long ago?

Mortgage providers normally do an affordability check, payday loans are a no no as it shows them you cannot live on your wage/budget each month but depending how long ago they were would depend on how big an impact they would have.

I'm sure someone more knowledgeable than me will be along soon to advise you.

PaulW922

Owing money on cards and overdrafts does not give you a 'shady' history. If you are properly serving the debt it will be a positive factor. What any mortgage lender will need to know is other you can afford to pay the mortgage if they give it to you.

solentsusie

rvd48 wrote: »

Hi folks, i currently have a fair chunk of debt that i need to clear asap.

on credit cards i have:
cc 1: £600
cc 2: £500
cc 3: £1,000
cc 4: £1,000

overdrafts:
no 1: £200 (small charge per day)
no 2: £2,000 (Graduate overdraft - no charge)

i can probably clear cc 1 and 2 (£600 + £500) plus £200 overdraft once i get paid this month and live like a tight bum until the next pay day lol.
The remaining 4k might take 3 months if i scrimp and dont spend much!
the problem is i want to get a mortgage by Dec15 / January 16 and with this shady debt history, i also have used payday loans and missed credit card payments in years gone by.
Will this seriously impact my chances of getting a mortgage even though i will be debt free and have possibly 10k in savings by late this year?

What are the APRs on the cards? Pay off the ones with the highest APR first. Also get rid of at least the small overdraft as constantly being overdrawn will imply you cannot live within your means.

How old are the missed payments and payday loans? They become less relevant the older they are but if they are less than three years old they usually have a much more significant impact.

You talk about having 10K in savings by December. Do you have any savings at the moment? If the credit cards are costing you money in monthly APR payments (i.e. you do not have 0% deals) then you are better off using the savings to pay these off than having it in the bank.

Also, get your statutory credit reports from all three credit reference agencies. It will cost you £2 per report. You will then be able to see the areas that may cause you problems. Noddle (the CallCredit report) is free if you set up an online account.

Hope this helps. Good luck.

solentsusie

PaulW922 wrote: »

Owing money on cards and overdrafts does not give you a 'shady' history. If you are properly serving the debt it will be a positive factor. What any mortgage lender will need to know is other you can afford to pay the mortgage if they give it to you.

Properly serviced accounts are considered a positive as it shows that you can be responsible with credit.

But the 5K debt the OP has now will more than likely be deducted from the amount any mortgage lender will allow them to borrow. They are becoming much stricter on affordability checks with all of the new legislation that has been brought in. So the OP will need to take this on board if they don't pay it off.

rvd48

Hi folks,

the last of the payday loans i took out was probably in 2011 (when i lived away from home and short on money)
unfortunatly, i've been stung by missed credit card payments in january this year and a number of missed payments going back each of the prior years to 2009. i could have 15-20 missed payments in that time.

i plan to clear all my debt by late june, cross fingers otherwise it could be july.
i'm pulling my finger out and being serious on clearing all my debt.

By July, i will be in positive equity and year end have some savings + my parents are going to give me some money for my house deposit.
i'm hoping that 10k + will and no debt (credit cards) will show that i have cleaned my ways and more careful with money.

Suzie, i dont have any savings atm, all my wages from now will go towards paying off my credit card and OD debt. i will have a look into credit reports, but possibly in june/ july when i've closed my credit cards down and closed the overdrafts

DCFC79

Setup direct debits and you wont miss any credit card payments.

solentsusie

You should set up direct debits for at least the minimum payments on all of your credit cards. That way you will never miss a payment.

rvd48

yup, i have no set up direct debits on the 2 cards that didnt have them.

in the next 3 months i will be planning to close my hsbc, barclays and lloyds bank accounts (including closing the associated credit cards to these accounts). Will closing all these surplus accounts improve my credit rating?

solentsusie

rvd48 wrote: »

yup, i have no set up direct debits on the 2 cards that didnt have them.

in the next 3 months i will be planning to close my hsbc, barclays and lloyds bank accounts (including closing the associated credit cards to these accounts). Will closing all these surplus accounts improve my credit rating?

Personally I wouldn't close the bank accounts. They could be useful for switching purposes and make you money. For example, switching from any of those accounts to Halifax can make you £125 at the moment - and we all like free money! I don't believe that multiple open bank accounts are going to affect your credit rating as long as you don't have huge overdrafts on them.

I also wouldn't close all of the credit cards. Use one regularly and sensibly once you have paid them off and it will show that you can use credit in a responsible manner. Pay it off in full every month so that you do not incur interest charges.

The thing that is going to affect you the most are the missed payments and payday loans. Once you have your credit files you can see exactly how many and when they were missed. Check Noddle - it is CallCredit's free online version - and see how your accounts look. You do need to get the files from Experian and Equifax as well though as not all companies report to all agencies.

For at least six months before you apply for a mortgage do not open or switch to any new accounts. Lenders like to see stability.

When you are ready to get a mortgage go to a reputable broker who will be able to advise you on the best mortgage on the market for your particular circumstances. If you have some anomalies on your file it is more sensible than going to a high street lender.

Good luck.